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The Digital Skeptic: Insider Trading? Why Even Bother?

NEW YORK ( TheStreet) -- My buddy Alec Foege has this to say to Mathew Martoma, Raj Rajaratnam, Martha Stewart or anybody else sucked into an insider-trading vortex in the digital age.

"I wonder sometimes why they even bother," he told me over the phone.

Foege is the founder and owner of Brookside Research , which since 2005 has provided customized, exclusive primary reports to hedge funds and those outfits usually looking to set up long-term investments. Foege cut his analytical teeth at so-called deep value shops including New York City-based Ruane, Cunniff & Goldfarb . Now working mostly from his home in Westport, Conn., he cares not a whit for complex quantitative models or gaining access to this or that bit of supposed insider information.

Rather, he takes a page from old-school, throwback, gumshoe investigative journalism. Which makes sense. Foege was a top-tier reporter for Rolling Stone , People magazine and others. He even worked at my shop several years back.

Foege relies on digging up 15 to 20 people with knowledge of the company or sector he's breaking down. Usually, he says it's former employees, referred experts or customers. He virtually never pays for information. Most folks are happy to talk to him. And he discloses all he learns immediately. "It is the aggregation of public information that creates the value," he said. "We are not looking for the scoop."

Which all gives Foege a fascinating take on insider trading in the information age.

"We live in an information-glutted world," he explained. "Anybody can do a Google (GOOG) search." The trick, he says, is not focusing on the bits and pieces that can be material and nonpublic, but assembling the right public information to match a specific investment need.

"There is almost never a situation where a single person holds the key," he said.

And if you let Foege guide you through some insider trading scandals, he clearly has a point.

What's that information worth? Take the by-now-infamous Raj Rajaratnam insider-trading scandal. The former manager of the Galleon Group was convicted of 14 counts of insider trading.

Foege confirms that specific information about upcoming earnings and coming deals were supplied by company experts, who acted as illegal tipsters to Rajaratnam, who was running a technology and health care fund. "I think people who participate in insider trading should be prosecuted," Foege says.

But he points out, the profits made were comparatively small. For all of Rajaratnam's skullduggery, he netted $63.8 million over the roughly seven-year period defined by the indictments -- about $9 million a year. Not that stellar a return, considering Rajaratnam managed a reported $7 billion in assets in 2008.

"A longer-term view probably would have netted more return," Foege argues."If there is one thing I have learned, it's that the real money is made in finding quality companies where there is an opportunity to realize value over the long haul."